Framing the Case on Quantum

FRAMING THE CASE ON QUANTUM*

Ladies and gentlemen. During my law school days, frustration increased dramatically if teachers said that a question had no right answer. But with today’s topic that caveat does apply. On many issues examined in the next panel, few right answers present themselves with any clarity. Some wrong answers exist, of course. However, on most significant matters related to quantum of damages, divergent approaches frequently possess their own validity, each claiming some measure of truth depending on the context of its application.

Part of the reason this area remains in such flux is that the field of investment arbitration continues to be invented on an almost daily basis. So few of us can call ourselves experts. We might be specialists in the sense that this is what we do for a living. But my last moment as an expert occurred shortly after I did my first case. Then, of course, I knew everything about the subject. But with the second and third cases came a realization that the varying positions other people took had considerable nuance and complexity, and thus weighing the relative costs and benefits was more difficult than originally expected.

The conference organizers now seek a brief laundry list of the various issues by which one might frame the next session’s discussion. Most of them present a vast intellectual ocean that has drowned minds far better than my own. However, one key issue runs like a thread through much of the discussion, and might well serve as a springboard to approach other questions. That issue relates to the legality (or lack thereof) of an expropriation.

When the law in this area began to develop eight decades ago, an arbitral tribunal in Europe rendered a decision sometimes called the Chorzów Factory Case,¹ of which there are probably as many different pronunciations as people in this room. It’s spelled C-h-o-r-z-o-w, and has been pronounced Car-saw, Harsh-saw and Horseshoe. You’re going to hear some wonderful variations of that during the next session. At some point, scholars may well start making reference to principles of state responsibility identified by their content rather than case name. The two most relevant remain Articles 31 and 36 of the ILC Articles of State Responsibility.²

In any event, the Chorzów Factory Case addressed a “taking” in what was then known as Upper Silesia, which interestingly finds itself in the lower part of Poland. The Germans owned the place through World War I. Then the territory was given to the Poles. A 1922 treaty was signed in Geneva between Poland and Germany, intended to promote resolution of expropriation questions in Upper Silesia. And the tribunal in that case said that it would make a distinction between legal and illegal expropriations and did so because it believed, rightly or wrongly, that you had to say the expropriation was illegal in order to add an element of lost profit, which they called lucrum cessans and distinguished from book value, or damnum emergens.

Many people who think that this distinction between legal and illegal takings has to some extent become of marginal relevance. Recently signed investment treaties and free trade agreements tend to require full compensation simply because there has been a taking. The expropriation must be for a public purpose and non-discriminatory. But most treaties add the conjunctive “and,” followed by the qualification that a taking shall be accompanied by prompt, adequate, and effective compensation, or something along those lines. Moreover, the arbitrator finding that damages are due will likely have first made an initial finding that the investment treaty was breached, which in itself constitutes an illegal act.

Nevertheless, the notion of illegal takings still has some relevance. It’s very hard to imagine that an arbitrator would not differentiate between taking a property to build a school and taking property from Jewish people because the host country determined that folks of that religion should not be land owners.